1.1 Key Terms in Stock Exchange
• Shares: A company divides its capital into units of equal denomination which are offered for sale to raise capital.
• Stock: The capital stock (or just stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to harm the creditors. The stock of a business is divided into shares, the total of which must be stated at the time of business formation.
• Bonds: A bond is a formal contract to repay borrowed money with interest at fixed intervals. Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure.
• Securities: A security is generally a negotiable financial instrument representing financial value such as, banknotes, bonds and debentures and common stocks.
• Dividends: Payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.
• Derivative: In finance, a derivative is a financial instrument whose value depends on other, more basic, underlying variables.
• Trader: In finance, a trader is someone who buys and sells financial instruments such as stocks and bonds.
• Stock broker: A broker is a party or person that arranges transactions between a buyer and a seller and gets a commission when the deal is executed. A stock broker is a regulated professional who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors.
1.2 What is Stock Exchange?
• A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide